Coronavirus impact still unclear amid global markets uncertainty – Synthomer CEO

Morgan Condon

05-Mar-2020

LONDON (ICIS)–Synthomer is cautious over the level of impact the coronavirus outbreak will have on the company’s 2020 financial performance due to the ongoing uncertainty in global markets, the CEO at the UK-headquartered chemicals producer said on Thursday.

While acknowledging that the virus had so far been the key factor to shape the industry this year, Calum MacLean described the initial impact on the specialty polymers producer’s performance as neutral.

MacLean was speaking to reporters in London after the firm released earlier on Thursday its 2019 financial results. weighed down by weak markets and poor conditions for styrene butadiene rubber (SBR), a key product for the company.

CORONAVIRUS IMPACT – UNKNOWN
Synthomer’s assessment about the potential coronavirus impact was based on sales in January, as results for February had not been analysed when infection rates recorded a significant jump on the previous month.

MacLean was cautious in predicting how the outbreak would be translated in the company’s 2020 results.

“Show me someone who really knows where coronavirus is going to go in the next two to three months. I don’t think anybody does; it is a bold person who makes that prediction and also a bold person who puts a number on it,” he said.

“I can tell you that we are well organised and that we are ready to manage whatever is the case that comes our way.”

Some European chemicals producers have already estimated the impact in first-quarter earnings the outbreak will have; Germany’s Evonik said on 4 March its earnings will take a €30m hit for the period, while France’s Arkema said on 27 February it expects the impact to be at €20m.

While the nitrile rubber (NBR) market could be supported by increased demand for medical gloves, growing strength for this throughout 2019 was not enough to outweigh poor performance in the SBR market.

Despite Synthomer being one of the largest SBR producers in Europe, this segment was impacted by strong performance from competitors and weakness in the paper industry, with the market size reduced due to the closure of several mills across the region.

There were increases in earnings before interest, tax, depreciation and amortisation (EBITDA) in all areas of the business apart from SBR, in spite of drags on the industry throughout 2019.

“Resilient is the word that we think best captures how we see Synthomer’s 2019 performance,” said MacLean.

“End markets across the global chemical industry have experienced a challenging trading environment including impacts of trade wars, Brexit, not to mention difficulties in the automotive and other industrial markets.”

Because of this growth, MacLean identified that the company was not as cyclical as others, which had faced pressure on margins last year in line with these factors.

OMNOVA INTEGRATION
The key thing set to impact Synthomer throughout 2020 is the acquisition of US-headquarted OMNOVA, which is expected to be finalised by the end of this month.

Closure of the deal had been anticipated before the end of 2019, but the European Commission approved it on the basis that Synthomer sold its vinyl pyridine (VP) latex production in Germany.

“We knew that there was some minor issues that we would have to face on competition clearance, but to be honest, we didn’t think that they would go as far as they did. Clearly as the Commission did go out and investigated that market they decided that there was a remedy necessary before we could complete the transaction,” said MacLean.

“The remedy is extremely modest, it is 6,000 tonnes of product that we produce at one plant, it is a relatively small EBITDA contributor to the total business, but what it has done is frustrated the process.”

The acquisition of OMNOVA was described by MacLean as a logical move as it would serve to improve Synthomer’s presence in the US, while complementing its current portfolio, enabling a slick synergy of assets between the companies.

This will be Synthomer’s primary focus before looking at other potential acquisitions over the next 12-18 months.

“I think that in terms of looking forward for the next two to three years you are looking at a business that will continue to grow because we invested into the assets and we have not seen the full upside of that yet,” said MacLean.

“It will continue to grow because we have done the M&A [mergers and acquisitions], we will de-leverage because we have a higher free cashflow, and when we do that we will be back here looking at how best to grow the business again.

“We are optimistic that we are well placed, well posed to continue this growth.”

Front page picture: Synthomer’s headquarters in London
Source: Synthomer

Focus article by Morgan Condon

Clarification: Re-casts headline

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